Tuck In Acquisition Strategy - Secret to Scale Your Business Fast

According to a 2024 report by McKinsey, tuck-in acquisitions are among the six prevailing trends currently shaping the hospitality and tourism industry.

The upward trend is also projected in other industries. For example, most MedTech companies actively seek tuck-in acquisitions below $1 billion, and McKinsey predicts a return of high-ticket medtech M&A deals.

Regardless of your industry, a tuck-in acquisition strategy can be one of the best ways to maximize your business's value or optimize your exit.

In this guide, we explore how tuck-in acquisitions integrate seamlessly, maximize synergies, and create lasting value for acquirers, target companies, and other stakeholders.

If you want to exit sooner, we at Exitwise can help you hire the best M&A experts.

We'll connect you with top M&A lawyers, wealth advisors, finance accountants, and investment bankers to help you make and execute a tuck-in acquisition strategy that secures the best sale price. Schedule a chat with us today to get started!

What Is a Tuck-In Acquisition?

A tuck-in acquisition is a business combination through which a larger company buys a smaller one in the same or a closely related industry and completely absorbs it into its business structure.

For example, Apple used a tuck-in acquisitions strategy to acquire Shazam, Siri, and Beats Electronics. These smaller companies offered music, voice recognition, and audio products, respectively.

Here’s a quick overview of the main characteristics of a tuck-in acquisition:

The acquiring company “tucks" in the smaller company's resources, technology, and operations into its platform. (The acquiring company is often called the platform or platform company for this reason.)
The acquired company is usually absorbed into an existing business unit, department, or division of the acquiring company.
The smaller company loses its organizational structure and corporate identity, including its brand.
The goal is to improve the acquiring company's revenue, market share, product or service portfolio, and customer base with minimal disruption.
The acquisition also seeks to increase the acquiring company's capabilities by acquiring intellectual property, key talent, and expertise.

Benefits of a Tuck-In Acquisition

As a business owner, founder, or CEO looking to sell, a tuck-in acquisition benefits you in three main ways:

Total Exit from Business or Industry: Since your company will be totally absorbed, a tuck-in acquisition helps you achieve a total exit from the industry or business world altogether. This is ideal if you are looking to retire.
Higher Chances of a Fast, Successful Sale: Selling a business takes time. However, you can sell much faster using the tuck-in approach. Generally, tuck-in acquisitions are low-risk. Acquiring firms prefer them as they are easier to complete and integrate.
Better Security for Your Employees: Unlike other acquisitions, where employees usually lose their jobs, tuck-in acquisitions generally absorb the acquired company's employees. You can negotiate for more key talent to be retained, and they can enjoy career development opportunities and a better benefits package from the acquiring company.

Tuck-In vs. Bolt-On Acquisition

Tuck-in and bolt-on acquisitions are similar. They are both add-on acquisitions, meaning smaller companies are bought by a larger one mainly to add new capabilities or expand market reach.

The acquired companies are also in the same or closely related industry as the acquiring company.

The main difference is that unlike in a tuck-in, where the acquired company loses its identity and structure, the acquired company in a bolt-on acquisition retains some independence.

The bolt-on company retains its structure and identity but now functions as a division or subsidiary of the acquiring company.

Tuck-In Acquisition vs. Platform vs. Add-On Acquisition

As mentioned, a tuck-in acquisition is a type of add-on acquisition. It involves a larger company buying a smaller company mainly to boost the acquiring company’s capabilities and market share.

On the other hand, a platform acquisition is a business combination where a private equity firm initially acquires a certain smaller company to act as the launch platform for acquiring other companies within that industry.

The platform acquisition practice has roots in private equity and includes three types of add-on acquisitions: tuck-in, bolt-on, and roll-up acquisitions.

How to Build a Tuck-In M&A Strategy

When building a sell-side tuck-in M&A strategy, your aim is to become an attractive target to prospective buyers looking for tuck-in target companies.

You'll have to present your company as a potentially beneficial opportunity for the acquiring company by emphasizing how it can help them improve their customer base and infrastructure.

Here are the critical steps for your strategy:

1. Assess and Value Your Company

Assessing and valuing your company involves the quick steps below:

Identify your core strengths, weaknesses, and unique value propositions. Consider what sets you apart: geographic reach, niche expertise, key talent, and proprietary technology.
Assess and improve your financial health. Prepare comprehensive and accurate statements to show your financial attractiveness to prospective acquirers.
Calculate the value of your company. Consider not only the internal metrics but also the potential synergies your company can help the buyer achieve.
Look for opportunities to maximize business value, such as improving its strengths or correcting its weaknesses.

2. Analyze the Market and Research Potential Acquirers

Check if the market is currently receptive to tuck-in acquisitions. If the economy and the M&A market are generally on a downward trend, it might not be the best time to sell your company.

You can also research potential acquirers. The first point to consider is if they are looking for tuck-in acquisition opportunities.

For example, if you are in the tech space, you can aspire to be one of the three or four smaller companies Apple acquires per week, mainly for key talent and technology.

When researching potential buyers, check their platform capabilities, business culture, and strategic goals.

3. Shortlist the More Qualifying Potential Acquirers

Your research should yield a preliminary list, which you can refine as you qualify the buyers and rank them based on their acquisition history, potential valuation, and the likelihood of interest and purchase.

You should also consider cultural alignment, which makes a seamless integration easier.

4. Refine Your Sale Narrative

Every potential buyer wants to see how your company is an ideal target and how it can integrate seamlessly into their platform. They also want to see your niche expertise, potential synergies, and the estimated value of your customer base.

You should articulate these aspects clearly to be more convincing.

If you have the necessary information, you can even conduct M&A modeling to assess the acquisition’s potential impact on the acquirer's and your financial position.

5. Prepare for Due Diligence

You must organize your financial, legal, and operational affairs and address any potential issues that may deter an acquirer.

For example, check if they could have any concerns with your compliance status, pending litigations, and customer concentration.

6. Contact, Engage, and Negotiate with Shortlisted Acquirers

Reach out to potential acquirers with an acquisition proposal or teaser.

If they express buying interest, ask them to sign an M&A NDA before you share more information.

You can negotiate a favorable purchase price, sale terms, employee retention, and deal structure to maximize value for all stakeholders.

There's no doubt that formulating and executing a sell-side acquisition strategy on your own can be difficult.

M&A experts, such as wealth advisors, finance accountants, and investment banking representatives, can help you develop and execute a tailored strategy.

When you work with us at Exitwise, we connect you with top M&A experts in your industry to help maximize your exit. Let us help you achieve the exit of your dreams.

How to Leverage Tuck-In Acquisitions for Business Growth

Whether you want to sell your business now or upgrade it for a later sale, you can borrow a leaf from the buy-side’s considerations.

Your goal will be to understand what they look for to see how you can maximize the value of your company to increase your chances of a successful sale.

Here's what acquirers consider when reviewing potential tuck-in acquisition targets:

Potential Market Expansion: Consider your ability to increase the acquiring company's market share and customer base by expanding into new or adjacent geographic markets.
Potential Product Line Improvement: Buyers look for smaller companies with complementary services or products to expand their portfolio.
Talent Acquisition: Analyze your employee base to see if you have key talent that can improve an acquirer’s existing team or provide special skills.
Technology Acquisition: Check if you have cutting-edge technology or intellectual property. Buyers want to see proprietary technology and turnkey patents in smaller companies with special expertise in a given field.
Operational Efficiency: With streamlined processes, you can fetch a better price. Your buyer can leverage your streamlined process and supply chain networks to enhance their own.
Potential Synergies: Explore how the acquisition can help your acquirer achieve cost savings, revenue increments, and operational efficiencies.

Let Exitwise Hire the Best M&A Experts to Perfect Your Acquisition Strategy

At Exitwise, we agree that different types of acquisitions can be complex, and tuck-in acquisitions aren't an exception.

We recognize that they can be fast and easy but also potentially risky if you don't use the right exit, transition, and integration strategies.

Here's how we can help:

Whether you are looking to exit using a tuck-in acquisition, bolt-on acquisition, or other types of acquisitions, we can help you perfect your acquisition strategy.
We will help you find, recruit, and manage the best industry-specific M&A experts, such as M&A attorneys, wealth advisors, investment bankers, and M&A advisors.
You can count on these experts to help refine your mergers and acquisitions strategy, find the best potential acquirers, and negotiate the best sale price. They can even help you develop an M&A exit strategy if you don't have one!

Schedule a consultation with our team today to get started.

Frequently Asked Questions (FAQs)

Let's end today's discussion with questions founders, CEOs, and business owners usually ask about tuck-in acquisitions:

When Should a Company Pursue a Tuck-In M&A Strategy?

You can pursue a tuck-in M&A strategy in one or more of the following situations, such as:

If you realize your organic growth will be more time- or cost-prohibitive, and an acquirer would benefit from what you've built so far.
When looking to exit a niche or industry completely to retire or explore other investment options in a different industry.
When you have achieved significant organic growth but reached a pinnacle and can’t proceed.
When you have a value-asset like customer base and technology but don't have the means and growth prospects to exploit it to your advantage.

What Industries Typically Use Tuck-In Acquisitions?

Tuck-in acquisitions are typical in consumer goods, technology, mining, and hospitality industries in different ways:

Energy industry acquirers look for small exploration companies and oil wells.
Technology industry acquirers look for new capabilities, such as intellectual property and special expertise.
Hospitality industry acquirers seek to increase their portfolio of properties.
Mining companies look for mines and mining technology.

How Does a Tuck-In Acquisition Impact Existing Operations?

In a tuck-in acquisition, you become an integral part of the acquiring company, and your operations are absorbed into the company's usual routine.

If your operations are streamlined, the company may keep them and even use them to streamline their own. However, if they’re not optimized, the acquirers may change them during the integration by adjusting workflows, tech systems, and your employees’ roles.

What Are the Risks Involved in Tuck-In Acquisitions?

You may encounter the following risks with tuck-in acquisitions:

M&A failure due to poor due diligence, incompatibility, and poor integration.
Losing your business legacy through loss of key talent, customer loyalty, internal identity, and brand awareness.
Costly delays due to the lengthy process of regulatory compliance or legal implications that may even terminate the deal.
Stakeholder resistance as some shareholders and employees may oppose the acquisition if they don't agree with its goals or its impact on their interests.

Is a Tuck-In Acquisition Better Suited for Small or Large Companies?

From the buy side, small companies are desirable because they are easier to buy and integrate. They also have much-needed complementary assets.

For the sell-side, larger buyers are better as they buy quickly and integrate more easily.

Conclusion

If you are looking to sell your company sooner and exit your industry or the business world completely, a tuck-in acquisition can be an excellent option.

The problem is that creating and executing a successful tuck-in strategy can be confusing. At Exitwise, we can help you optimize your strategy and exit by connecting you with the best M&A experts.

These experts can help you find and negotiate with potential tuck-in acquirers for a successful sale at the highest possible purchase price.

Consult with us today to optimize your exit.